1. 1 Europe’s Monetary Union in practice José Manuel González-Páramo Member of the Executive Board and Governing Council of the European Central Bank 14th Osaka City University (OCU) International Academic Symposium Osaka, 27 October 2006

2. 2 Introduction “EMU will contribute to the creation of a large zone of monetary stability in Europe. The euro, in particular, will be a strong and stable currency that will foster further economic and financial integration among member countries” (Duisenberg, 1997) Has EMU fulfilled these expectations?

3. 3 Outline Assessing price stability Assessing financial integration Conclusions

4. 4 Assessing price stability. Establishing credibility. The ECB’s approach Full independence Specific quantitative definition Medium-term horizon Two pillars: economic and monetary analyses Communication: - Publication of monetary policy strategy - Press conference - Monthly Bulletin

5. 5 Assessing price stability. Inflation expectations

6. 6 Assessing price stability. Predictability

7. 7 Assessing financial integration: Its benefits Enhances the smooth and effective transmission of monetary policy Contributes to safeguarding financial stability Contributes to smooth operation of payment systems Fosters financial development

8. 8 Assessing financial integration. The role of the Eurosystem Enhance knowledge and raise awareness –Regular publication of quantitative indicators of financial integration in the euro area Act as a catalyst for private sector activities –STEP initiative, SEPA, European Master Agreement for financial transactions Provide central banking services – TARGET, Single list of collateral, CCBM Give advice on the legislative and regulatory framework

9. 9 Assessing financial integration. The current status (I) Money market:

10. 10 Assessing financial integration. The current status (II). Government bond market:

11. 11 Assessing financial integration. The current status (III). Corporate bond market:

12. 12 Assessing financial integration. The current status (IV). Equity market:

13. 13 Assessing financial integration. The current status (V). Banking markets:

14. 14 Conclusions Has EMU been effective in promoting economic stability? –Yes, the response has allowed the anchoring of inflation expectations and a high degree of predictability –But other economic policies are needed: sound public finances and structural reforms Has EMU been effective in fostering financial integration? –Yes, money market is a good example –But financial integration is still lagging behind in some areas (retail, clearing and settlement infrastructure…)